Rabbit tracheal epithelial cells grown on fibronectin-albumin-vitrogen coated dishes undergo squamous cell differentiation when reaching high density. In the last stage of this terminal differentiation cells undergo cornification. We have established several factors that regulate this differentiation and several biochemical parameters that can function as markers for this differentiation. We have shown that the addition of serum, the omission of EGF from the medium, high density and high calcium concentrations can promote differentiation whereas retinoids inhibit squamous cell differentiation. We have shown that the induction of squamous cell differentiation is accompanied by the synthesis of several new proteins and is regulated by retinoids. Undifferentiated rabbit tracheal epithelial cells express seven major keratins and a new 48 kd keratin is expressed when cells are induced to squamous cell differentiation. In vitro translation experiments have indicated that the synthesis of this 48 kd keratin is regulated at the level of mRNA. Cells undergoing squamous cell differentiation are also induced to synthesize transglutaminase activity. This transglutaminase has been identified as the "epidermal" transglutaminase on basis of its immunoreactivity with a monoclonal antibody against human transglutaminase from human keratinocytes. When cells are grown on collagen gel and in the presence of retinoids cells containing secretory granules were observed by electron microscopy and we have shown via biochemical techniques that these cultures produce mucin glycoproteins. The presence of retinoids appears to be important since in its absence cells don't contain secretory granules and undergo squamous cell differentiation. Studies are underway to determine how differentiation is regulated at the molecular level.